Federal Reserve Board: Paper by Jordan Haedtler, Andrew Levin, and Valerie Wilson Propose Reform to Fed Structure; Diversity Important to Foster Well-Considered Monetary Policy

Haedtler, Jordan; Levin, Andrew; and Wilson, Valerie (2016), “Making the Federal Reserve Fully Public: Why and How,” paper, August.

This paper outlined current issues presented by the current operations of the Federal Reserve Board and the Federal Reserve Banks (collectively, the Fed). The authors present several ideas for thinking about reforms (that would not affect the Fed’s political independence (a long-used diversionary tactic against any reform, see Auerbach, Robert D. (2008), Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan’s Bank, Austin: University of Texas Press.”).

The graphic (below) shows the potential obstinacy the authors are up against with the Fed; persistence is key and absolutely necessary in this case. The Fed is a public agency; it is way past time for the organization to accept it.

Sheila Clark’s letter to the EEOC (printed in the Aurebach book, page 123).


I will review topics in the paper that caught my attention in this post. (Again, the full paper is located here.)

Related blog posts–




While the paper is necessarily technical (especially, the composition of the boards of the Federal Reserve Banks), the observation of the ill effects of the current structure of the Fed is extremely important. The ultimate goal of the Fed must be to work for the entire population of the United States of America.

First, the authors noted that the lack of diversity, in terms of race, gender, and profession, as well as sectoral diversity leads to perspectives of many segments of the population being left out in monetary policy discussion. For example, the paper explained that the effect of monetary policy was not discussed in the following areas:

  • African Americans suffer disproportionately from labor market downturns and benefit markedly from economic recoveries. However, this issue was little mentioned in the Federal Open Market Committee, or FOMC, meetings.
  • A focus on inflation, the authors continued, rather than on full employment reflected the make-up of the people in the room–multimillionaire chief executive officers and other major corporate figures. People with this wealth or income have different perspectives than small business owners, debtors, students, middle- and low-income workers, and those seeking credit.

Second, the paper makes note of the need of an independent office of the inspector general. While the Board has an Inspector General, the office is not independent because the office depends on the Board for his or her position as well as for the budget to operate the office. As noted in a previous post

The Board’s [Inspector General] IG is not truly independent, rather it is an arm of the Board’s Chair. The Board’s Chair appoints the IG. (See Auerbach, Robert D. (2008), Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan’s Bank, Austin: University of Texas Press, pages 113-115 (esp. first full paragraph on page 114).) In addition, the Board funds the operations of the IG (see, for example, Board Annual Report, 2013, page 314 (paragraph 3)).

In addition, that authors mention a recommendation of an audit by the Government Accountability Office, or GAO. It is unclear what type of audit the authors are seeking–financial or performance. It seems to be a mixture of the two. But performance audits must be carefully monitored and examined. I have discussed the weakness of the performance audit previously in the blog.

Third, the authors briefly discuss the Board’s semiannual Monetary Policy Report. Presently, the MPR is mostly historical (previous six-month period) at the time it is distributed to members of Congress. The MPR tends to be wordy, filled with distracting graphical material, and difficult to discern the points the Board is seeking to present. I think a more focused and clear report is necessary for the Board to fulfill its obligations to the public.

The authors’ proposal should be included with proposals from former Board Vice Chair Donald Kohn (presented previously in the blog).

It will be interesting to see which reforms occur as a result of this well-written paper.